Municipal bonds are issued by states and municipalities and typically have tax advantages relative to other fixed income assets. In general, income from muni bonds is tax exempt at the federal level and at the state level for investors living in the issuing state. Municipal bonds have historically been favored by investors in high tax brackets who, of course, derive more benefit from the tax exemptions by virtue of being in the highest tax brackets. (more…)
Posts Tagged ‘interest rates’
Sector Watch: Municipal Bonds
Posted in 401(k), Asset Allocation, Bonds, ETFs, pensions, Retirement, retirement income, retirement planning, Risk, Taxes, Uncategorized, tagged Bill Gross, fixed income, folios, high yield bonds, income exempt, interest rates, Meredith Whitney, muni, Municipal Bonds, public pensions, QE, Quantitative Easing, Target Date Folios, Treasury bonds on November 19, 2012 | Leave a Comment »
Managing Your Portfolio’s Exposure to Interest Rates
Posted in 401(k), Asset Allocation, Bonds, Diversification, financial planning, Investors, Long-term investing, Market Outlook, Retirement, retirement planning, Risk, tagged 10 year treasury bonds, Beta, bond yields, interest rates, QE, Quantitative Easing, REITs, Treasury bond yield, Treasury bonds, u s treasury bonds, Utility stocks on October 24, 2012 | 3 Comments »
Today, the yields on ten-year Treasury bonds are at a fifty-year low, and no period prior to the last few years reflects yields that even come close. From 1962 to 2005, the lowest the 10-year Treasury bond yield ever got to was just below 4%, more than twice the current yield.
The chart below shows how unusual our current environment is. The vertical axis is the yield from 10-year Treasury Bonds and the horizontal axis is time and we are looking at a period from 1962 to present. From 1980 to today, we have seen the yield of 10-year Treasury bonds go from about 12% per year to below 2%. The 10-year Treasury yield is considered a benchmark measure of bond yield and interest rates. The Fed funds rate and the 10-year bond yield are very closely tied to one another. For another illustration of how interest rates, the Fed funds rate and 10-year bond yield are related, see here. (more…)
The Challenge of Long-Term Income: Part II
Posted in 401(k), Active Investing, Asset Allocation, Commodities, Financial Advisors, financial planning, Income Investing, Investors, Long-term investing, Personalization, Retirement, retirement income, retirement planning, Risk, Stock Investing, Volatility, Wealth, tagged Annuities, Are You A Stock or a Bond?, government bonds, Inflation, interest rates, low-risk, Moshe Milevsky, Rachel Taqqu, Risk Less and Prosper, TIPS, Treasury bonds, ZVI Bodie on September 17, 2012 | 9 Comments »
In Part I of this article, I explained why I have issues with the traditional idea that individuals should provide for their required level of retirement income (beyond what is provided by Social Security and any pensions) entirely with assets with zero risk of loss of principal (e.g. Treasury bonds). In Part II, I discuss the alternative approaches.
There are two investments that have zero loss of principal: traditional Treasury bonds and Treasury Inflation-Protected Securities (TIPS), which are Treasury bonds with embedded protection against inflation.
I agree with the notion that people need to save and invest so as to be able to provide a very reliable and consistent income stream in retirement. Zvi Bodie has presented a compelling argument that investments in stocks do not become less risky as you hold them for longer periods, so that investors cannot rely on stocks as part of their required income stream. I have performed detailed analysis of Bodie’s argument and I agree with his argument: the magnitude of loss that you can face with an equity-heavy portfolio increases the longer you hold the portfolio. As I noted in Part I, William Bernstein has recently advocated for a portfolio in which all of your required income is provided by Treasuries and annuities, largely consistent with Bodie. (more…)
The Challenge of Long-Term Income: Part 1
Posted in 401(k), Asset Allocation, Bonds, Financial Advisors, financial planning, Income Investing, Investors, Long-term investing, Market Timing, Personalization, Retirement, retirement income, retirement planning, Risk, Wealth, tagged government bonds, Inflation, interest rates, low-risk, TIPS, Treasury bonds on August 29, 2012 | 9 Comments »
Portfolio Income: The Trouble With Treasury Bonds
The current economic environment is making it very hard for investors to generate reasonable levels of income through traditional means such as bond ladders. While it is always dangerous to suggest that ‘it’s different this time,’ I believe that we are facing some unprecedented conditions that require new approaches. Income-seeking investors with low risk tolerance—those who have traditionally favored government bonds—are in the most difficult situation.
The problem of low savings and investment rates in the U.S. is huge. I have written about this in the past, along with many others. Every study on retirement savings notes that Americans need to save more. Having the ability to support yourself from a portfolio of savings is not, however, just about the amount that you save. There is also the issue of how much income you can derive from each dollar in your portfolio. Today, with historically low yields on government bonds, retirees and others seeking to live on the income from low-risk investments are faced with an enormous challenge that compounds the savings rate problem. To be able to live on the income provided by very low-risk investments, the necessary savings rates increase dramatically relative to savings rates when investors are willing to bear some risk. (more…)
Sell in May? 9 Trillion Reasons to Say “No”
Posted in 401(k), Active Investing, Asset Allocation, Diversification, financial planning, Global Investing, Investors, Leverage, Long-term investing, Market Outlook, Uncategorized, tagged bonds, Fed, Federal Reserve, G4, interest rates, sell in may, sell in may and go away, stocks on April 20, 2012 | 3 Comments »
Guest Post by Contributing Editor, David Kotok, Chairman and Chief Investment Officer, Cumberland Advisors.
The old adage “Sell in May and go away” was good guidance for stock markets last year. The market peaked on April 29 and bottomed out on October 3. For a detailed discussion of this period and the subsequent bull-market recovery, see our new book From Bear to Bull with ETFs. The eBook (ten bucks) is now available on Amazon.com. Paperback by month end and other channels of distribution like iBook and Nook are coming. Please note that profits from this book will be donated to the Global Interdependence Center, www.interdependence.org.
History shows that ‘Sell in May and go away’ has applied when the Federal Reserve was in a tightening mode during the six-month span from May to November. (more…)
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